March 22, 2009

I have tried to stay on the sidelines because a number of people are blogging about the AIG bonus issue, but I can’t contain myself any longer. This is likely to be part one of a three or four part series, because this issue, in my opinion, is much larger than just the public’s reaction to these bonus payments.

First, no one that earned and received these bonuses at AIG is guilty of anything. They did their job and deserved to be rewarded for their efforts based on contractual agreements. So I am not only saddened but ashamed of the blame game behavior of both the liberal and conservative news media and a number of very ignorant protestors camping out on AIG executive’s lawns.

If you have never worked in a variable compensation model it is impossible to understand the pressure of carrying a quota or delivering the next great source of new revenue. Therefore, targeting these very blue collar individuals to interview on TV just makes the situation worse.

So, if these executives aren’t to blame then who is? It is a long list – the senior executives who built the compensation models, followed by the compensation committee and the board of directors for AIG that approved them. Next in line is the US Government for not being proactive in evaluating and better adjusting or confirming these bonuses when AIG first was asking for money. Congress comes next for not reading Dodd’s language – which expressly allows for the bonuses to be paid. Finally this is just another faux pax by the Obama administration. The President’s Chief of Staff needs to clean house of their PR and protocol staff because their actions and mistakes in the first 60 days of this administration are comical to the point of being criminal.

Do I think that all these multi-million dollar bonuses that a number of companies that took bailout money are fair or justified, no I don’t. But that isn’t the question on the table. If these payments were being decided in a court of law, not a court of public opinion, there isn’t a case to be made that these should not be paid. The Constitution, if it made it to the Supremes would also support payment.

The real conversation should be about Board accountability and “Say on Pay.” For the moment I am going to concentrate on accountability and will save comments on say on pay until my next installment.

President Obama’s reaction to AIG bonus payments isn’t the first time has echoed the public’s outrage. Most American’s felt pretty much the same way when executives on Wall Street and executives from bailed out banks received significant year-end bonuses and other compensations. The President followed up with a “close the barn doors after the cows are in the pasture” $500,000 salary freeze for executives of organizations that take new Federal funds. If I am to believe CNN the average American thinks a $500,000 salary package is unbelievable – almost immoral.

So how much is a CEO worth? In this silly quarter to quarter world we live in they seem to be worth a lot for what seems to be very little sustained performance. If there are “criminals” in this process it is the compensation committee chairs and boards that approve these crazy compensation plans. Incentive compensation is all about moving the needle. If as a CEO I can show growth, profitability, new market expansion, or ?? to improve my company’s share value and sustainability I am worth a lot, and no one should complain because by moving the needle every stakeholder of the company is getting rewarded. But let’s get serious, the transactions and deal sizes have gotten crazy and justification of paying a small “percentage” of the deal is ludicrous. Don’t misunderstand me, I get hard work, creativity and value and don’t balk at million dollar plus bonuses – but $20 million? Boards have to step up, dig in and bring some collective sensibility to this process.

Comments

First of all, I think Timothy Geitner was a poor hire by the Obama administration. I even understand Obama's logic, that you have to have insiders to be able to deal with the complexities of the now-fallen house of cards the financial institutions allowed to be built. But he (and Lawrence Summers) are insiders to the point that they are totally corrupted. I wish Obama hadn't been afraid to hire the reformers he really needed. I am hoping he will change Treasury Secretaries once the economy has stabilized to the point that he doesn't have to fear Wall Street's plunging the country into another Great Depression.

Secondly, I think Chris Dodd will pay a price for his amendment when he runs for re-election in 2010. I imagine he's frantically praying the economy gets a WHOLE lot better soon, because otherwise he may find himself out of a job. Ned Lamont beat Joe Lieberman in the 2006 Democratic primary, and I don't think it's much of a stretch to think that Lamont might run again - and possibly win - against Dodd in the 2010 primary.

Third, I don't think it is at all fair for you to call the protesters ignorant. You are a CEO for a successful and growing (amazing in this economy!) company, and so you have job security and are well paid. On the other hand, I just got turned down for a job I desperately wanted, and so I understand first-hand the deep-seated anger and fear of the protesters in a way you probably can't.

I resent that my and my husband's hard-earned tax dollars were used to pay any bonuses to anyone at any company involved in the financial mess that has caused the value of our retirement accounts and our house to plummet precipitously. I am not surprised by the death threats AIG employees have received. I'm honestly more surprised that there hasn't been actual violence (like the tragic murder of Dr. Tiller on Sunday). People who are angry and afraid do irrational things.

Finally, the Obama administration has shown no hesitancy to break the contracts made with UAW retirees who worked for now-bankrupt GM and Chrysler. (Even Lee Iaccoca has lost his pension!) Why SHOULDN'T the contracts for employees of now-bankrupt Wall Street companies have been broken? To come full-circle on this comment, I think the reason is because Geitner is so corrupted by Wall Street that he refused to let it happen.